from the not-just-packet-collisions dept

It would be an understatement to say that net neutrality has been in the news quite a lot recently. One of the supposed arguments against it is that requiring all data packets to be treated equally within a connection will prevent companies from offering us a cornucopia of "specialized services." The main example cited is for medical applications -- the implication being that if net neutrality is required, people are going to die. Speaking at the Mobile World Congress that is currently underway, Nokia's CEO Rajeev Suri has come up with a novel variation on that theme, as reported by CNET (via @AdV007):

Suri emphasises that self-driving cars need to talk over wireless networks fast enough to make decisions with the split-second timing required on the roads. "You cannot prevent collisions if the data that can prevent them is still making its way through the network", said Suri, discussing Nokia's drive toward instantaneous low-latency communication across the network.

Yes, according to Suri, there are going to be terrible pile-ups on the roads unless we get rid of net neutrality. Leaving aside the fact that low-latency communications across the internet will come anyway -- if there's one thing that's certain in the world of digital technology, it's that everything gets faster and cheaper -- there's another problem with this argument.

Self-driving cars that are so reliant on such guaranteed, high-performance networks are hardly going to be very resilient in real-life situations -- and certainly not the kind of system that the public will want to entrust with the lives of themselves and their families. If self-driving cars are to be widely accepted, one of their key features must be the ability to work safely even with the flakiest of internet connections. Suri's attempt to use this emerging technology as a weapon against net neutrality instead undermines the argument for self-driving cars themselves.

from the damage-control dept

Last week, The Intercept revealed how the NSA and GCHQ had hacked into the major supplier of SIM cards to swipe encryption keys for tons of mobile phones. Earlier this week, we noted that Gemalto appeared to be taking the Lenovo approach to insisting that no one was put at risk. Today the company presented the "findings" of its internal analysis of what happened, admitting that there were sophisticated hack attacks, but insisting that those attacks could not have reached the goldmine source of encryption keys. First, the admission of the hack:

In June 2010, we noticed suspicious activity in one of our French sites where a third party was trying to spy on the office network. By office network we mean the one used by employees to communicate with each other and the outside world. Action was immediately taken to counter the threat.

In July 2010, a second incident was identified by our Security Team. This involved fake emails sent to one of our mobile operator customers spoofing legitimate Gemalto email addresses. The fake emails contained an attachment that could download malicious code. We immediately informed the customer and also notified the relevant authorities both of the incident itself and the type of malware used.

During the same period, we also detected several attempts to access the PCs of Gemalto employees who had regular contact with customers.

At the time we were unable to identify the perpetrators but we now think that they could be related to the NSA and GCHQ operation.

And then the "but don't worry about it" part:

These intrusions only affected the outer parts of our networks – our office networks - which are in contact with the outside world. The SIM encryption keys and other customer data in general, are not stored on these networks. It is important to understand that our network architecture is designed like a cross between an onion and an orange; it has multiple layers and segments which help to cluster and isolate data.

While the intrusions described above were serious, sophisticated attacks, nothing was detected in other parts of our network. No breaches were found in the infrastructure running our SIM activity or in other parts of the secure network which manage our other products such as banking cards, ID cards or electronic passports. Each of these networks is isolated from one another and they are not connected to external networks.

The report also notes that it appears that someone (again, probably NSA/GCHQ) also targeted communications between Gemalto and its carrier partners using highly targeted spearphishing attacks -- but that the company sought to block those and has long used a "highly secure exchange process" to protect such transmissions.

The company also says that some of the operators listed in the leaked documents are ones that Gemalto has never worked with anyway, so if NSA/GCHQ got access to their keys, it wasn't via Gemalto. It further notes that even where the NSA/GCHQ may have gotten access to keys (via other means) it may have only been of limited use, while also noting that the encryption that was targeted was already pretty weak:

In 2010-2011 most operators in the targeted countries were still using 2G networks. The security level of this second generation technology was initially developed in the 1980s and was already considered weak and outdated by 2010. If the 2G SIM card encryption keys were to be intercepted by the intelligence services, it would be technically possible for them to spy on communications when the SIM card was in use in a mobile phone. This is a known weakness of the old 2G technology and for many years we have recommended that operators deploy extra security mechanisms. However, even if the encryption keys were intercepted by the Intelligence services they would have been of limited use. This is because most 2G SIMs in service at that time in these countries were prepaid cards which have a very short life cycle, typically between 3 and 6 months.

This known weakness in the original 2G standards was removed with the introduction of proprietary algorithms, which are still used as an extra level of security by major network operators. The security level was further increased with the arrival of 3G and 4G technologies which have additional encryption. If someone intercepted the encryption keys used in 3G or 4G SIMs they would not be able to connect to the networks and consequently would be unable to spy on communications. Therefore, 3G and 4G cards could not be affected by the described attack. However, though backward compatible with 2G, these newer products are not used everywhere around the world as they are a bit more expensive and sometimes operators base their purchasing decision on price alone.

While I will admit to being pretty skeptical based on Gemalto's initial comments, its explanation here is somewhat more reasonable. While some may question if Gemalto really was able to figure out what the NSA/GCHQ got access to, it does not appear that the company is merely brushing this off as a non-story. However, if the company was really hacked back in 2010/2011 -- one can reasonably question how much the company can actually determine what really happened.

Update: Many of Gemalto's claims are now coming under scrutiny, with some suggesting that the company's "research" into things misses the point, and the details...

from the misdirection dept

Last month, BlackBerry CEO John Chen tried to kiss up to major wireless carriers on the issue of net neutrality with a truly bizarre missive that received ample mockery in the technology press. Basically, Chen tried to argue that we don't need tough neutrality rules -- but we really should consider rules that force app developers to make content for unpopular mobile platforms. Like oh, BlackBerry, which after endless missteps now controls just 2% of the smartphone market. This was, to hear Chen tell it, because when companies refuse to make apps for unpopular platforms they're violating something Chen called "app neutrality":

"Netflix, which has forcefully advocated for carrier neutrality, has discriminated against BlackBerry customers by refusing to make its streaming movie service available to them. Many other applications providers similarly offer service only to iPhone and Android users. This dynamic has created a two-tiered wireless broadband ecosystem, in which iPhone and Android users are able to access far more content and applications than customers using devices running other operating systems. These are precisely the sort of discriminatory practices that neutrality advocates have criticized at the carrier level."

Of course, as we pointed out at the time, Netflix isn't discriminating against anybody. If BlackBerry wasn't currently a train wreck and had a big enough market share to justify their time, Netflix would surely develop an app for BlackBerry users as well. As most of you know, net neutrality is about protecting the Internet from the bad behavior of companies that have built massive last-mile broadband monopolies courtesy of regulatory capture. In contrast, developers aren't making apps for BlackBerry simply because people aren't using BlackBerry's products. And while Google and Apple do dominate the smartphone market, the primary reason is because they offer a good product. That's in contrast to say, AT&T or Comcast, which offer a crap product because they have a government-protected monopoly over the last mile and have no incentive to improve.

I have no idea from the bowels of which ISP think tank or telco meeting room this "app neutrality" talking point originated; Chen and BlackBerry's incoherent tirade dominates the search results for the term. But it's worth noting that Mark Cuban actually argued a very similar point two days earlier, but, fortunately for Cuban, the media was too busy mocking BlackBerry to notice. Here's a snippet of Cuban's insight on the issue of app neutrality:

"There are basically 2 doors that control the availability of apps to the vast majority of smart phones in this country. They are owned and controlled by 2 of the largest tech companies in the world, Apple and Google. If you want your app to reach any type of audience (yes there are other app platforms supporting phones on the margin, but they are tiny by comparison), you have to make Google and Apple happy."

Again, this ignores that Apple and Google have come to dominate the smartphone market because they make a kickass product. Not to say either of those companies doesn't engage in anti-competitive behavior, and I don't think anybody would argue Apple's app approval process isn't bizarre. But that has nothing to do with net neutrality, and Apple and Google are a far, far cry from government-pampered duopolists like AT&T and Comcast. Still, Cuban proceeds to insist that net neutrality rules need to ensure Apple and Google play nice too:

"The mobile app economy is far from open. It’s dominated by two companies. It is in the best interest of the entire mobile eco-system to address this duopoly while we are re-examining net neutrality. We should seriously consider requiring Apple to to allow and support 3rd party app stores and to require that Google continues to support and enable 3rd party stores and more importantly to integrate them into the Play Store, much as Amazon does with Marketplace integration."

Cuban is again showing he doesn't quite understand how the broadband industry works or what net neutrality actually is. Consumers actually do have a choice of what kind of smartphone to buy or what apps to install. While there are some smartphone freedom constraints (usually imposed by the aforementioned carriers, mind you), users still can buy a Windows phone, or a BlackBerry phone, or some offshoot hackable Android ROM that provides greater application freedom and allows them to install whatever unsigned applications they'd like. They can also access something called the Internet for even greater freedom. That's in contrast to a Comcast customer who, if they want decent broadband, usually doesn't have any other choice. The two discussions are nothing alike, and I don't think that's a particularly complicated point to understand.

Still, like "search neutrality" before it, somebody somewhere pretty clearly hopes that the idea of "app neutrality" will shift people's attention away from what the net neutrality conversation is actually about: highly-tactical telecom carrier abuse of an uncompetitive broadband market. Fred Campbell of the Center for Boundless Innovation in Technology (a policy group dedicated to "liberate the ingenuity and creative spirit of America’s high-tech entrepreneurs and enterprises through market-oriented government policies") also rushed to the "app neutrality" argument when the group recently suffered a small stroke over the FCC's Title II plans:

"Chairman Wheeler’s description of his plan in Wired is disingenuous. His proposal will not ‘ensure the rights of innovators to introduce new products without asking anyone’s permission.’ Some of the biggest gatekeepers on the mobile Internet today are using their power over mobile operating systems to deny access to application developers, yet these behemoths are exempted from the FCC proposal. The fact is, application developers will still have to ask someone for permission before they can access the mobile Internet.

The Chairman’s plan is also discriminatory. He is proposing to apply privacy limitations on Internet service providers through ‘Section 222′ while exempting Internet ‘edge’ companies whose fundamental business model is to profit from collecting and selling personal information about consumers. The Chairman’s discriminatory decision to exempt the Internet’s biggest data collectors from this privacy provision appears designed to protect the Administration’s political allies in Silicon Valley, not consumer privacy."

You see, Google, Apple and Netflix's domination of the smartphone and streaming video market is bad, even though consumers still actually have an organic market choice when it comes to those services. AT&T, Comcast and Verizon's stranglehold on the broadband market is to be ignored -- even praised -- because, uh, well, I'm not sure. You'd think those endlessly espousing the value of "free markets" would find the latter situation equally untenable, since it often involves companies literally writing state telecom law to further insulate government-protected duopolies from said market freedom. Unless of course it's not really about loving free markets or meaningful personal values at all, and it's really just about offering any old flimsy, inconsistent argument to help carriers protect the revenues received from uncompetitive (and certainly not free) markets?

from the you-had-one-job dept

One of the very first things new FCC boss Tom Wheeler did when he entered office was to get wireless carriers to agree to a list of voluntary cell phone unlocking guidelines. The six "demands" are largely common sense and uncontroversial, and include requiring that carriers offer unlocked devices to active overseas service members, make their postpaid and prepaid unlocking policies as clear as possible, respond to unlocking requests within two business days, and automatically notify customers when their contract period ends and their phone can be unlocked.

I'd heard that carrier lobbyists balked at this last request fearing it would "advertise" unlocking, but ultimately acquiesced out of fear of tougher, non-voluntary rules coming down the pike. Note this is entirely separate from the fight over keeping cell phone unlocking legal and the need for DMCA exemption process reform. The rules also don't require that carriers simply sell unlocked phones outright, since that would probably make a little too much sense. After agreeing to the rules, carriers had more than a year to adhere to all six requirements, and the final deadline arrived last Wednesday.

Interestingly it's Verizon and AT&T, arguably the worst of the major carriers when it comes to attempts to stifle openness over the years, that come out ahead in adhering to all six guidelines (though your mileage may vary, and since the rules don't require much, this may not mean much). For Verizon, that's in part thanks to the Carterfone conditions placed on its 700 MHz spectrum, though that hasn't stopped the company from fighting openness in general tooth and nail in other ways. As I've noted previously the conditions have plenty of loopholes -- and anti-competitive behavior is allowed just as long as companies ambiguously insist that what they're doing (like blocking Google Wallet, or locking bootloaders) is for the "safety and security of the network."

Similarly interesting is the fact that T-Mobile, despite a recent reputation for being a fierce consumer advocate, sits right alongside Sprint when it comes to failing to adhere to the fairly simple requirements after a year's head start. Khanifar notes T-Mobile saddles prepaid and postpaid users with a number of strange restrictions, including the fact that users can't unlock more than 2 devices per line of service in a 12 month period. Between this, the company's opposition to Title II and its failure to understand the problems with zero rated apps, T-Mobile's showing it still needs to actually earn that ultra-consumer-friendly reputation.

Khanifar proceeds to note that despite carrier struggles this is at least a step in the right direction, even if we still need DCMA reform to ensure unlocking remains perfectly legal. That said, he quite justly highlights how cell locking no longer makes any coherent sense, for anybody:

"It's worth taking a step back and examining the absurdity of these locks. If you've paid for your AT&T phone, committed to a 2-year contract, and agreed to an "early termination fee," what purpose does a lock really serve? If you've paid cash to purchase a prepaid device, why should it come locked to just one carrier? There's plenty of evidence that locks serve little real commercial purpose. Verizon's business hasn't suffered since they stopped locking their phones. Countries like China and Israel have made locking devices outright illegal with no harm to their wireless industries and plenty of gain for consumers. But unfortunately it's unlikely that Congress or the FCC will take action to implement a similar policy here in the US."

Of course unlocked, open devices widens the competitive door, and with the kind of lobbying power AT&T, Verizon and the entertainment industry wield over Congress, getting real DMCA reform or mandated unlock-at-sale rules in play will likely be nothing short of a miracle.

from the chicken-little dept

If you recall, the wireless industry has spent much of the last decade proclaiming that a "spectrum crunch" was afoot, declaring that unless the government did exactly as requested, wireless growth and innovation would grind to a halt. AT&T was quick to claim that it needed to buy T-Mobile because of said spectrum crunch, though the company's own leaked documents highlighted that this simply wasn't true (this hubris being a big reason the deal was rejected). Verizon has also spent years crying spectrum poverty when convenient, despite repeated analysis showing its holdings lead the industry.

Yes, there is finite spectrum, but as with all network capacity constraints this has increasingly been mitigated by Wi-Fi offloading, new technologies and smart engineering (not to mention unlicensed options and technologies we haven't even conceived yet). If there is a "spectrum crunch," it's predominantly among smaller competitors that lack the resources to buy huge swaths of spectrum, or the political power to get regulators to tilt the entire playing field (and spectrum auction process) in their direction. Of course, both AT&T and Verizon have breathlessly and repeatedly denied that they warehouse extra spectrum to help keep would-be competitors at bay.

After years of warning of spectrum armageddon, Verizon's again making it clear that the entire spectrum crisis was contrived nonsense. After nabbing another $10.4 billion at the recent AWS-3 auction, Verizon CTO Tony Melone this week stated that despite years of claiming spectrum poverty, Verizon never really felt pressured to buy such a huge swath of spectrum:

"In a conference call with investors, Tony Melone, Verizon Communications' executive vice president of network, said that "entering the auction there was no markets where we felt compelled to acquire spectrum, irrespective of the price." Verizon did not feel pressure to aggressively bid for spectrum because it already had at least 40 MHz of AWS-1 spectrum in many U.S. markets, especially in the eastern United States, Melone said."

It's always kind of amusing when the network guys forget to adhere to narratives set by the policy folks (like the Verizon CFO's recent slip up in admitting Title II isn't a big deal). But Melone's comments are a far cry from claims made by Verizon's policy blog just a few years ago, when the company was trying to get regulatory approval for a huge co-marketing deal with the cable industry:

"Rather than waste time arguing about spectrum efficiency, let’s focus on the issue on which we all agree: America’s wireless consumers face a spectrum crunch that won’t be relieved by Verizon’s spectrum purchase. It’s up to the industry, as well as policymakers, to help ensure that more spectrum reaches the marketplace soon, so America’s wireless industry remains the global leader in innovation that it is today."

Said spectrum crisis seems to materialize out of thin air when Verizon needs something, then just as quickly disappears when the company candidly decides to talk about its holdings. Of course, Verizon gets away with this kind of stuff, in part, because the tech press (with the occasional exception) loves to regurgitate company claims unskeptically. And if you've been paying attention, you'll note that congestion has long been a useful bogeyman to scare regulators into bending rules to the benefit of the biggest, least competitive companies. Remember the Exaflood? How about usage caps? Does anybody notice a pattern?

With Verizon's bloated belly full from the recent AWS-3 spectrum purchases, and new technologies constantly evolving to more than meet mobile network demands, that should be the last we hear about Verizon's spectrum shortfall for a long while, right? Of course not. The big telco threat these days is that if the government imposes tough net neutrality protections, we'll see a dramatic decrease in innovation and network investment leading to (you guessed it) network performance and capacity issues (though we've illustrated how these claims too are bunk).

You'd think we'd reach a point, after so many years of false claims, where the press would no longer just take the claims of lumbering, bloated duopolists at face value. If there's a crisis, it remains a crisis of critical thinking.

from the creative-gatekeeping dept

After hinting about such a project for some time, you might recall that AT&T introduced "Sponsored Data" at the company's developer summit around this time last year. It works like this: if companies pay AT&T a fee their content is specifically allowed to bypass AT&T's already entirely arbitrary (as in, not tied to any real world costs or network conditions) usage caps. To hear AT&T pitch it at the time, this would be akin to "free shipping" or a 1-800 number for data, and an incredible boon for consumers who want to conserve their pricey data allotments.

While some consumers seemed quick to applaud the idea, they weren't understanding the awful precedent AT&T was setting. If you allow AT&T to set arbitrary caps then charge companies to bypass them, you're injecting a company with a rich history of anti-competitive behavior into a content and service ecosystem that works much better with it out of the way. Also, as VC Fred Wilson correctly noted at the time, such a model puts smaller companies and developers at a distinct disadvantage to their deeper-pocketed counterparts. What AT&T pitches as a great creative boon to industry is actually AT&T just desperately trying to retain gatekeeper power.

While AT&T executives have spent two years claiming that interest in this idea is through the roof -- one year later, just ten (mostly smaller) companies have signed up for AT&T's pilot. While Sponsored Data played a starring role at last year's AT&T Developer Summit, executives didn't mention the project once during this year's event. To hear AT&T tell it, there's still tremendous interest in the idea -- despite the fact there's clearly not tremendous interest in the idea:

"Nonetheless, AT&T CMO David Christopher told FierceWireless that the carrier is still "very bullish" on the program...What we said last year, and what we've continued to say, is Sponsored Data is a really unique, interesting capability that is going to take time for it to evolve into various business models," Christopher said in an interview. "We are seeing interest from a variety of developers and content owners in Sponsored Data."

While some companies aren't eager to court net neutrality controversy, others seem entirely oblivious to the threat such a model poses to innovation and smaller developers. Beyond just the obvious neutrality implications, the idea doesn't appear to be gaining traction with companies because new wireless shared data plans have most people signing up for significantly much more data than they need in order to avoid costly overages. In other words, when you have more cellular data than you need, and you're spending a lot of additional time using Wi-Fi, having a few apps or ads that don't impact your data allotment doesn't mean all that much in practice.

As such, it seems like only a matter of time before AT&T mutates the Sponsored Data idea into something notably more awful with a better sales pitch. As I've noted previously, while most of the net neutrality discussion focuses on outright blocking of websites or throttling of connections, the real danger zone is these kinds of "creative" pricing efforts where carriers try to use their gatekeeper power to desperately avoid being dumb pipe providers. It's here, under a glossy coat of PR paint where the real neutrality violations are going to occur, but as we've seen, it's difficult to craft neutrality rules that protect consumers from obnoxious shenanigans -- while allowing for real pricing and service experimentation (should that actually happen in the broadband sector someday).

In this case, we appear to be just lucky in that AT&T's implementation was just so bad most companies were bright enough to steer clear. That's not always going to be the case. As we've seen with the positive reaction to T-Mobile's decision to let the biggest music streaming services bypass its cap (which of course hinders smaller companies or nonprofits not big enough to get whitelisted), it's very clear it's possible to create new business models that tilt the playing field and screw smaller companies and consumers -- all while receiving thunderous applause for the effort.

from the that-only-took-two-years-and-four-months dept

It took a while, but Verizon appears to finally have gotten the message that consumers don't like companies fiddling with their traffic and ignoring all of their privacy preferences (weird, right?). The wireless carrier has taken heat for several months now for its practicing of embedding all wireless user traffic with a unique identifier traffic header (or UIDH). That header was intended to help Verizon track user online behavior via its own programs, but because it's transmitted for everyone to see, the potential for abuse was high and -- despite Verizon's claims to the contrary -- it pretty quickly wound up being abused.

One of the biggest problems with the program (aside from modifying user traffic to begin with) was that if a user opted out of Verizon's program, they were only able to opt out of personalized ad delivery -- not the embedding of the UIDH. After months of staying largely mute on the subject, Verizon has issued a statement saying that its opt-out service will actually work -- sometime "soon":

"Verizon takes customer privacy seriously and it is a central consideration as we develop new products and services. As the mobile advertising ecosystem evolves, and our advertising business grows, delivering solutions with best-in-class privacy protections remains our focus.
We listen to our customers and provide them the ability to opt out of our advertising programs. We have begun working to expand the opt-out to include the identifier referred to as the UIDH, and expect that to be available soon. As a reminder, Verizon never shares customer information with third parties as part of our advertising programs."

Again, you're not "taking customer privacy seriously" when you develop and use a system that not only makes all of their privacy choices completely irrelevant, but broadcasts their online behavior for any unethical nitwit to abuse. That would, by fairly strict definition, be not taking consumer privacy seriously.

While not engaging in this practice at all (or requiring that users opt in) would be a preferred solution, functional opt out would at least be an improvement, though it still raises questions about what kind of privacy protections need to be in place to prevent us from playing Whac-a-Mole with an endless parade of bad ideas just like this one. Back in 2008, Verizon stated that the wireless industry didn't really need consumer privacy protections because public shame would keep them honest; though it's worth repeating that this program was in play for two years before security researchers even noticed it. It stumbled forth another four months before Verizon finally stated it would do something about it -- eventually.

Verizon's decision came a day after the company received a letter from the Committee on Commerce, Science and Transportation asking for more details on the program. So while the company's hoping to avoid tougher consumer protections (like oh, any location data privacy protections whatsoever or Title II), it's once again proving quite clearly why we actually need someone guarding the privacy henhouse with notably sharper teeth.

from the to-win,-cede-ground dept

The FBI, along with seemingly every law enforcement agency in the country, wants a backdoor into every new, encrypted-by-default cellphone, arguing that without this, the "bad guys" will win the "tech arms race." The DOJ cited this same "arms race" in its (losing) argument against a warrant requirement for cellphone searches. To hear law enforcement tell it, today's criminals are racing far ahead of today's under-equipped cops, who are stymied by their billions of federal drug-chasing dollars, automatic license plate readers, warrantless GPS tracking, building interior-scanning radar devices and cell tower spoofers.

A dealer in Handsworth, Birmingham—who would only give his name as "K2"—told me: "I've got three Nokia 8210 phones and have been told they can be trusted, unlike these iPhones and new phones, which the police can easily [use to] find out where you've been… Every dealer I know uses old phones, and the Nokia 8210 is the one everyone wants because of how small it is and how long the battery lasts.

Old tech beats new tech, at least in some business ventures. The 8210 has 50-150 hours of standby time and an infrared port to quickly beam data from one phone to another (handy for burners or compromised phones). But other than its connection to cell towers, the phone provides no other means of connectivity: no Bluetooth, no WiFi, no WLAN. Nothing.

And while the police should be able to easily obtain call records, cell site location data (along with intercepting signals with IMSI catchers), simply grabbing the phone from a suspected dealer will only reveal the last ten calls sent and received, along with whatever's been saved to the address book. ('K2' halves his exposure by using one for sent calls and one for received.). They're durable, cheap and unlike today's smartphones, aren't "just GPS ankle monitors that double up as pizza-ordering devices," as Vice's Mike Zacharanda puts it.

These are the phones police have been able to access for the last 15 years, but it's only in the last couple that we've been hearing sustained noise about cellphones giving criminals a head start in the tech race. But if more criminals begin moving in the other direction, how will law enforcement respond? They'll have won the arms race but will have gained no ground. They'll be back in burner territory of yesteryear -- small, disposable phones that hold very limited amounts of incriminating evidence. So, it's back to regular police work, where the seized device doesn't perform the investigation for you. Which is the way it should be, even now, when technology has expanded far beyond a game of Snake and a 5-line monochrome screen.

from the come-for-the-low-prices;-stay-for-the-features dept

By now, you may have already read last week's news, broken by The Information (paywall -- but coveredwidelybylotsofothersources), that Google plans to launch a mobile cellular service in the US late this year -- as an MVNO (Mobile Virtual Network Operator -- basically offering a cellular service, but using someone else's physical network).

This is huge news, and it is correctly observed that this is likely to shake up the industry. The Google virtual network, rumored to be called Nova, will run on top of not one, but two infrastructure-based network operators: T-Mobile and Sprint. By combining the two, Nova can have wider geographic reach, higher average data speeds, and higher average signal strength. It may also be possible to bond the two carriers together to get much faster speeds. Nova could also benefit from lowest-cost routing, running on whichever network's costs are lowest in real time.

Analysts have suggested that the threat of Nova will strike fear into the hearts of Verizon Wireless and AT&T, and perhaps it does. Sprint and T-Mobile, whether combined by a merger, or virtually by Nova, are still a far more formidable competitor than each alone. And Google is known for offering services for free (or very cheap compared to industry norms). I wouldn't expect to see any kind of free cellular service here. At best, Google will offer the service above cost, which I'd estimate could start as low as $15 per month. And that's the crux of most of the news coverage: "Google to attack market with low price."

But most of the analysis thus far has left a lot of forward-looking ideas on the table. I'm betting that Google has much more in mind than a relatively low-price cellular service that can ride on the best signal of two networks. Here are some ideas Google should look to push out, and if they do, it will reveal how this MVNO is a huge strategic play for Google:

Nova will not be a virtual network that aggregates two disparate networks. It will aggregate three. The increasing spread of WiFi hotspots and their IP-based connections are a no-brainer. And if Google seeks to keep prices low, it can offload as much data as possible onto users' home and work WiFi networks. Expect the Nova virtualization layer to incorporate IP connections from Sprint, T-Mobile, and WiFi.

That said, it makes sense for Google to jump into telecoms now, when an IP-only network is finally feasible. LTE provides the low-latency data connections required for VoIP. I expect Nova to be either all-VoIP, or at least mostly so. This lowers the operational expenses versus a conventional cellular service, which has to manage classic circuit-switched voice networks and an IP data network in parallel.

To further drive down the costs of the network, and increase the amount of WiFi offload, I wouldn't be surprised if Google either partnered with, or copied a company like Devicescape*. Devicescape is a firm that has aggregated millions of public hotspots into a "Curated Virtual Network" (CVN). This firm, or similar competitors, has already developed and demonstrated the technology to virtualize millions of diverse WiFi into one virtual layer. Google will probably follow on the heels of Republic Wireless, which uses the CVN and keeps costs down by being a "WiFi-first" cellular MVNO on Sprint's infrastructure.

It's rumored that over at Sprint, which is now owned by Japan's Softbank, the driving force for this deal was Masayoshi Son. Son isn't known for modest market disruption. He goes big. He spent $21.6 billion to acquire a controlling interest in Sprint, and one of the key assets of the deal isn't Sprint's current standing in the US cellular market -- it is Sprint's tremendous (yet fallow) spectrum holdings at 2.5GHz. Now, with all that money spent, a question looms: What deep pocketed partner could be entreated to help invest the capital required to develop LTE-A networks on that spectrum? Google certainly comes to mind. At the very least, a popular Google MVNO would bring demand for data that would help Son develop and utilize his US spectrum assets.

That covers the network upheaval, so now onto phones and devices.

Google's Nexus phones have always been a success at pushing along the other phone makers and carriers, but less of a success in terms of sales volume. But the Nova network could change the outlook for Nexus sales. As it stands, the Nexus 6 is among the few phones that already has the right radios for both Sprint and T-Mobile's different networks and frequencies. The mere existence of Nexus line proves that Google can get phones made to meet its precise needs (a huge feat, for anyone who knows this industry). But, up to now, Nexus phone functionality has been both driven by Google and also limited by mobile carriers. No sense building in features that carriers or their networks won't support, right? And that's Nexus, the most un-encumbered phone model available. Every other handset OEM out there gets pushed around even more by the powerful carriers, since carriers are the bulk buyers of the devices. So far, Apple is the biggest exception. Apple has fought and won more vertical market power than any handset vendor ever. Apple can drive many features to market, but even so is still limited by carriers: Remember tethering, or FaceTime being blocked? But what if Google were the carrier for its own Nexus phone? There would be nothing between the services it conceives and the customer. So, Google will sell more Nexus phones, and the phones willenhance the Nova network's functionality. And all with low capital invested or risked, since Google owns neither phone factories nor network towers.

And in fact, the Nova network is just the "Nexus One of cellular networks." Let's not forget the Nexus One phone success strategy: Either Nexus succeeds and sells high volume, or it fails, but still pushes other stakeholders along towards Google's market objectives. You can substitute the word "Nexus" in that sentence with either of: "Google Fiber," "700MHz FCC Auctions," "Android," or "Nova" for that matter. It's a great strategic play for Google: Heads we win...tails we win. But there is thin ice here with respect to Fair Trade -- it's not fair for Google to deliberately fail in the cellular market, or lose money just to bring down its competitors (the economics term is "dumping"). But, in this case, Google can easily try to make Nova a money-earner, and/or a strategic win. And the WSJ has reported that Google is not strictly pursuing a low-price service.

So, the phone hardware issue is also disruptive. What about services, features, and functionality? Now comes the icing on the cake:

An unconstrained Google phone on its own network, running all-IP would unleash many of the company's disparate services that have somewhat languished as orphans for years. Google Voice could be the entire voice component of the Nova network, featuring cheap worldwide VoIP, visual voicemail, and voice messaging a.k.a push-to-talk. Hangouts would be the default chat and SMS app.

Where else does Google have ambition, and could the phone fit in there? The Android Auto efforts, perhaps? Connected home via its assets Dropcam and Nest? Why not. A Nova Nexus could easily be a hub inside a connected car, leveraging the car's display with Android Auto. Throw out voice commands using your car's microphone telling your garage door to open and to turn off your home alarm. The Internet of Things? Sure, Google can be more creative, and offer very interesting pricing models in IoT, if it operates its own MVNO.

Now, to push some boundaries, what about total communications convergence? Think "smartphone in the cloud". Google could take Chrome on the desktop, Google Apps on iOS devices, and Android tablets and reproduce the full range of communications services from the phone. Sitting at your desk, but forgot your phone at home? MMS, SMS, and other chat services would just pop up on your PC. You could make voice calls using the same number from anywhere - one cellular account, but on any device. Need to make changes on your mobile phone? Do it remotely from your PC. And it's not just computers that could access the phone's features: your TV, your car, or your Microsoft Hololens could each be virtual iterations of your phone. Suddenly, your "communications self" is liberated from this 5" brick to which we've become so attached. Your "self" follows you, not your phone. Google has been working on many of these ideas for years. You can use Google Voice, and Google Hangouts on a smartphone and a PC, but it adds complexity for users because the phone still has another voice service, another SMS app, and phone number as its identity. That phone identity historically has been locked within a carrier's garden walls. But with Nova + Android + Nexus, Google can remove the entire construct of walls.

Can Google promote, market, and sell a device? Well, the company has learned a lot since the first Nexus One. The Play store is now much more polished, and it successfully sells devices every day. Google can easily promote its network and phones in its search results, or in millions of other ad inventory spaces that it manages. Support was a noted weakness of the first Nexus One, but even that has come a long way. Google now has a few years of experience in customer support through projects like Google Fiber. So, while support is unlikely to be a specific strength for Google, the bar isn't really set that high, is it?

Now, none of this is a slam dunk. Analyst Phil Goldstein wrote over at FierceWireless that there are 5 reasons why Google's MVNO will fail. And while I disagree with five of his five points, it is true that there are numerous hurdles to overcome. Goldsteins five points, in aggregate, represent true barriers. And we've seen lots of big profile MVNOs fail. In fact, on the US docket, the more ambitious the MVNO, the lower the track record of success. The failures have stemmed from high handset cost (ESPN), an app posing as a carrier (Amp'd), no clear target market (Disney), high marketing and Subscriber Acquisition Costs (Helio). To counter, I would argue that Google has the ability to produce hardware at the right price points, has a very wide audience of Android and Google users, and has good access to their markets using existing web properties. And it's not all doom and gloom, lesser MVNOs have frequently found measured success: Simple Mobile, Republic Wireless, TracFone, Virgin Mobile, etc. And none of those had the structural advantages, or deep pockets that Google has.

In short, there is a lot more below the surface of a Google MVNO. You can bet that the ambitious people steering this thing are not simply thinking of "a new network using T-Mobile and Sprint, but slightly cheaper."

*Disclosure: In the past, I have been a consultant for Devicescape. I haven't had a professional or financial connection to the firm in over a year.

from the the-debate-rages-on dept

Just this morning we wrote about a newly proposed bill that would stop states from blocking municipal broadband. This comes just a few weeks after President Obama similarly proposed having the FCC pre-empt state efforts to block cities from offering up their own broadband service. Muni broadband is often seen as a way to fight oligopolistic control of the broadband market by letting local communities offer another competitor (and often better, cheaper service). Critics, however, argue that local governments shouldn't be competing with private companies, and we shouldn't have governments getting into the broadband space at all. At the same time, they worry about the federal government stepping in to block states from making their own laws (though they don't seem to express similar concern about states blocking municipalities from making their own decisions). This week on the Techdirt podcast, we discuss municipal broadband and whether it's good government interference in the market, adding competition against incumbent legacy providers, or bad government interference in the market.